--%>

Explain Cost of capital aspect

Cost of capital aspect: Estimation of WCR is beneficial from the point of view of cost of capital too. A sound working capital position is beneficial from the point of view of both owners and lenders of the company. A sufficiently positive position means that the firm is able to meet all its short term needs even if they arise quickly. Therefore, the lenders will be secure in this scenario. For the owners, this situation means that the secure short-term lenders will extend them easy credit facilities and higher payment schedules. Thus, the impact on the overall situation will further get negated. The firm will be able to perform with lower cost of capital. Another aspect of large positive working capital is that it will mean lower level of long-term funds involvement thus, reducing the overall cost of capital for the firm. On the other side, if the WCR estimation turns out to be negative the firm will be able to identify the probable threats to its operations from existence of such situation and take corrective actions. This will help to bring down the possibility of any such occurrence and their impact period is minimized to a minimum. Some of the steps could be more lenient. Sales policy which would result in more sales in the market, paying off of unnecessary payables which only result in raising amount of current liabilities a without any productive use.

   Related Questions in Corporate Finance

  • Q : Explain reasonable things to do is to

    The reasonable thing to perform is to finance current assets that are collections and inventories etc. with short-term debt and fixed assets along with long-term debt. Is it correct?

  • Q : What is optimal capital structure What

    What is optimal capital structure?

  • Q : State Exploitation of favorable market

    Exploitation of favorable market conditions: The firms after estimating WCR are in a position to clearly identify their status of excess current assets. After this realization they can use this knowledge to encash conditions arising in market even for

  • Q : What is a 3 x 1 Split What is a 3 x 1

    What is a 3 x 1 Split?

  • Q : Strategy of Bull Spread State when

    State when market is expected to go up then what is the Strategy of Bull Spread?

  • Q : Define Effective Utilization of Funds

    Effective Utilization of Funds: It is just the decision to maximize the return on investment of funds. When finance manager is not capable to raise the return by investing fund in profitable assets or other profitable projects, company’s busines

  • Q : Which frame work does not give very

    Which model of frame work does not provide the very good prices for bonds?

  • Q : Explain influences of financial

    Does financial leverage (i.e. debt) have any influence on the Free Cash Flow, upon the Cash Flow to Shareholders, upon the growth of the company and upon the value of the shares?

  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

  • Q : Explain few Spanish mutual funds

    Is this true that very little Spanish mutual funds outperform their benchmark? Isn’t this strange?